USD Gains As Initial Jobless Claims Drop, Commodities In Bull Market, Chinese PPI Data Continues To Improve, ASX SPI200 Futures Down 27 Points

US equities closed lower on Thursday despite a drop in initial jobless claims (June 14th) to 264,000 from 268,000 the week prior, suggesting despite the disappointing non-farm payrolls data last Friday the US labour market remains healthy. Continuing claims for May 28th also decreased to 2.095 million from 2.172 million. The S&P500 closed down -0.17% with a late rally paring back most of the early losses as did the Nasdaq100 which closed -0.18% weaker while the US Dollar gained 0.54% against a basket of currencies measured by the DXY index. Investors will continue to look towards the June 14-15 FOMC meeting for interest rate hike forecasts and how the Fed will interpret last Friday’s job report, however the key event that is likely to continue to weight on sentiment is the June 23rd Brexit referendum and we may see increased volatility across markets in the next two weeks.

Commodities were broadly weaker on Thursday as the US Dollar gained with the Thomson Reuters equal weighted commodity index down -0.14%, overall the index is up approximately 23% from the January low qualifying from the common criteria of a bull market seen on the first chart below. WTI & Brent crude oil both closed -1.31% & -1.24% respectively, as did Copper (-1.09%) while Iron Ore remained unchanged. The standout was natural gas which jumped +6.04% as data showed that supply gained less than expected as the gas rig count continues to decline. Precious metals spot gold & spot silver were also higher, up +0.55% & +1.39% respectively.

 Data out of China on Thursday continued to show signs of stabilization, with the producer price index (PPI) dropping less than forecasts in May from a year prior, down -2.8% against expectations of -3.2%. The measure of wholesale prices has been negative since 2012 however the second chart below shows the improvement since bottoming out in December 2015. Further data showed Chinese CPI increased 2% year on year in May, down from 2.3% a month prior and below market estimates despite rising food costs which gained 5.9%. Both the Hang Seng & CSI 300 did not trade on Thursday as markets were closed for holidays. Elsewhere the Yen has continued to strengthen against the US Dollar, up approximately 4% over the past week and this will continue to provide headwinds for the economy and particularly exporters who have benefited from the windfalls of a weaker Yen over the past few years. The market will be watching any comments from the BOJ at next Thursday’s policy meeting for hints of any further stimulus, we know policymakers believe movements by the Yen have been one-sided and want to intervene in the market however this is extremely unlikely to be sanctioned as we saw at the G7 meeting last month.

The ASX200 closed modestly lower on Thursday, down -0.15% while the market looks set for a weaker open this morning with ASX SPI200 futures down 27 points in overnight trading.

Data releases:

·         Japanese PPI (MoM & YoY May) 9:50am AEST

·         German CPI (YoY May) 4:00pm AEST

·         UK Consumer Inflation Expectations (Next 12 Months May) 6:30pm AEST

·         Canadian Unemployment (MoM May) 10:30pm AEST

·         University of Michigan Consumer Confidence Survey (MoM Jun) 12:00am AEST

·         US Baker Hughes Rig Count (Jun 10) 3:00am AEST

Source: Rivkin, Bloomberg, Tradingeconomics.com

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This article was written by James Woods - Global Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

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